A new jockey to follow
The type of special situation that I am going to use for this pick is called a jockey play. That means that you find an entrepreneur who has successfully started a business in the past and sold it for a large profit who is starting a new venture that you can get in on on the ground floor.
I have followed two jockeys into investments lately with mixed results, Stuart Tanz into ROIC (+44% and counting) and Richard Heckmann into HEK (-2% and hopefully improving). Those two are real money investments for me. I avent put any real money to work in this next jockey play, but I am picking it here in CAPS.
Air Lease is an airplane financing company that went public in April of last year at a higher price than it is trading at today. It was started by Steven Udvar-Hazy, who previously started a similar company called International Lease Finance and sold it to AIG.
I am personally somewhat familiar with the airplane leasing industry from my previous foray into International Lease Finance distressed bonds that I purchased during the credit crisis. I can tell you that massive recessions are not kind to airline leasing companies :). I was sweating my investment in the bonds at the time, but things eventually turned OK.
Flash forward to today and Udvar-Hazy is attempting to recreate the magic with a new airplane leasing venture. The new company seems to have a decent tailwind so to speak in that the terrible airline industry is doing about as well as it is ever going to. Add to that the need for air carriers to purchase more efficient planes in today's relatively high cost fuel environment and there should be plenty of business for AL.
In fact, Air Lease has significant orders on the books already for new planes over next three years. These orders alone should cause the company's earnings to rise from $1.20 in 2012 to $2 in 2013 and $3 in 2014. That's some pretty solid visibility into excellent earnings growth. At a multiple of only 15 times that 2014 earnings estimate, down from the 21 times that AL trades at today, the stock would be a double from its current level.
So what could go wrong? Well, the main thing would be another recession that would cause airlines to cancel these orders before they take delivery of the planes. If you're optimistic about the economy, as I am, then this shouldn't be an issue.
This isn't my typical value-type of stock pick, but a jockey play is a special situation that I will venture outside the value world for.
This idea comes courtes of John Osterweis of Osterweis Capital via an interview that he recently did with the excellent publication Value Investing Insight.